After a military divorce, the retiree pays the Survivor Benefit Plan premium. DFAS deducts it automatically from retired pay each month before any share is sent to the former spouse. The divorce court can shift the economic burden, though: a decree can order a pension offset that reduces the former spouse’s share by the premium amount, or it can require the former spouse to reimburse the retiree directly. If the decree says nothing about the cost, the retiree absorbs it in full.
How DFAS Collects the Premium
DFAS pulls the SBP premium straight out of the retiree’s retired pay every month.1Defense Finance and Accounting Service. Paying for SBP Federal law requires this reduction to happen before any other distributions are calculated, including the share owed to a former spouse under a division order.2Office of the Law Revision Counsel. 10 USC 1452 – Reduction in Retired Pay So the premium shrinks the pool of disposable retired pay that gets divided between the parties in the first place. Both sides feel the premium in that sense, but only one name sits on the deduction line: the retiree’s.
If a VA disability waiver eliminates or reduces the retiree’s retired pay, DFAS pulls the premium from Combat-Related Special Compensation instead. That has been the rule since April 2018.1Defense Finance and Accounting Service. Paying for SBP If neither source can cover the full premium, the retiree pays DFAS directly to keep the coverage from lapsing.
Shifting the Cost to the Former Spouse
DFAS will not look past the court order for payment instructions, so any reallocation of the premium’s economic weight has to be written into the divorce decree or settlement agreement. Two approaches are common.
A pension offset reduces the former spouse’s monthly share of retired pay by the amount of the premium. If the premium is $200 and the former spouse is entitled to 40 percent of retired pay, the decree instructs DFAS to subtract $200 from the former spouse’s share before payments go out. This is the more common method because it is self-executing when the order is drafted correctly, and no one has to write a check.
A direct reimbursement arrangement leaves DFAS out of it. The former spouse pays the retiree back each month, typically by transfer or check, for the premium the retiree has already had deducted. This method depends on ongoing voluntary compliance and can be difficult to enforce if the former spouse stops paying.
If the decree is silent, there is nothing to shift. The retiree bears the full premium, and the former spouse receives their court-ordered share of retired pay without any reduction for coverage costs.
What the Premium Actually Costs
The premium is calculated as a percentage of a base amount chosen at the time of the election. The base can be set anywhere from a $300 minimum up to the retiree’s full gross retired pay, and it is normally negotiated during the divorce and written into the decree.3Military Compensation and Financial Readiness. Survivor Benefit Plan Spouse Coverage – Costs and Benefits
For most retirees who entered active duty on or after March 1, 1990, the premium is 6.5 percent of the base amount.4Air Force Retirees. SBP Coverage Costs A $3,000 base produces a $195 monthly premium. A minimum $300 base produces a $19.50 premium. That number is what any offset or reimbursement clause is dividing up.
Both the base amount and the premium rise each year with the same cost-of-living adjustment that applies to retired pay. The 2026 COLA is projected at 3.8 percent.5U.S. Department of Labor. 2026 Adjustments to Retired/Retainer Pay, Survivor Annuities and Premiums A decree that locks in a fixed dollar figure for the cost-sharing arrangement will drift out of alignment within a year or two. Percentage-based language keeps the allocation proportional as the underlying premium grows.
When Premium Payments End
A retiree who has paid premiums for 360 months (30 years) and has reached age 70 hits paid-up status. Premium deductions stop entirely at that point, and coverage continues for the former spouse at no further cost.6Military Compensation and Financial Readiness. Paid-up Survivor Benefits Program Reimbursement clauses should say expressly that the former spouse’s payments end when the retiree becomes paid up; otherwise a former spouse could keep paying for coverage that DFAS is no longer charging for.
Coverage Has to Be Locked In Within One Year
None of the cost-allocation planning matters if the coverage itself is not properly converted. Divorce terminates any existing spouse SBP election. To keep coverage in place for the former spouse, the retiree must file DD Form 2656-1 with DFAS to convert the election to former spouse coverage within one year of the divorce decree.7Military Compensation and Financial Readiness. Stopping Survivor Benefits Program The decree or settlement agreement must specifically name SBP; vague references to “survivor benefits” can cause DFAS to reject the filing.8Office of the Law Revision Counsel. 10 USC 1450 – Payment of Annuity: Beneficiaries
If the retiree fails or refuses to file, the former spouse can file a “deemed election” independently on DD Form 2656-10.9Department of Defense. DD Form 2656-10, Survivor Benefit Plan Request For Deemed Election The same one-year deadline applies. If nobody files within that year, the right to former spouse coverage is lost permanently. DFAS has no authority to grant extensions, and no federal remedy exists for a late filing.
Because the deadline is unforgiving, practitioners routinely recommend that the former spouse file DD Form 2656-10 independently even when the retiree has agreed to file DD Form 2656-1. Two filings provide redundancy. If the retiree’s form is lost or delayed, the deemed election serves as backup.
Premiums are retroactive to the month after the divorce, regardless of when within the one-year window the election is actually filed.7Military Compensation and Financial Readiness. Stopping Survivor Benefits Program A retiree who files near the end of the window can expect DFAS to collect back premiums for the months in between.
The Tax Angle
SBP premiums are excluded from the retiree’s federal gross income. The deducted amount is not reported to the IRS and is not taxed, which lowers the retiree’s taxable income.10Soldier for Life – U.S. Army. Survivor Benefit Plan Taxes and SBP Fact Sheet That tax benefit belongs to the retiree even when the former spouse is reimbursing the cost, because DFAS reports the reduced income on the retiree’s tax documents regardless of any private payment arrangement between the parties. A reimbursement clause that ignores this quietly leaves the former spouse paying pre-tax dollars while the retiree keeps a pre-tax deduction, so decrees using the reimbursement method sometimes adjust the reimbursement amount to reflect the tax shift.
On the receiving side, if the retiree dies and the former spouse begins collecting the annuity, those payments are taxable as ordinary income. A former spouse who made direct premium payments during the retiree’s lifetime may be able to exclude a portion of the annuity from gross income until the excluded amount equals what was paid in.